Behind Canada, Mexico is the largest importer of crude oil to the United States, but a changing breeze is pushing the southern neighbor to produce more wind energy.

Unlike other petroleum-producing countries in Latin America, Mexico’s energy industry has always been state-owned. In the past, this arrangement allowed the country to have more control of the development of its industry. But high foreign debt has kept Mexico from investing in expanding its petroleum infrastructure, supplies — and revenues — are now dwindling.

So in an effort to capitalize on green economic opportunities, President Felipe Calderón has made a big push to install wind power. But as the USA Today reported, wind power may not be as cool as supporters tout it to be.

"Calderón has pledged to have the region producing at least 2,500 megawatts by the time his term ends in 2012. That’s enough for as many as 700,000 average U.S. homes.

‘With nothing but wind power, without burning a drop of petroleum, we are generating electricity so people can live better, so companies can produce more and generate more jobs, and so that people here can benefit through rent or association with these projects,’ Calderón said during a recent visit to the isthmus."

The newspaper reported that land owners in the Tehuantepec isthmus were paid very low rent prices for their land, and the rows of towering windmills cut irrigation lines to farmers and covered crops with dust. In fact, according to the article, one community of Huavé indigenous people sued to keep large foreign companies off their land. Quoting a lawyer from the Tepeyac Human Rights Center who worked on the case, Claudia Vera said, "It’s clean energy but dirty business."

Mexico is one of the most promising areas for wind energy development in Latin America with a technical potential of as much as 40 GW. The energy regulator CRE has stated that Oaxaca’s Isthmus of Tehuantepec zone has a world-class wind resource where average wind speed often exceeds 10 m/s, and the exploitable wind power potential exceeds 6,000 MW. Other excellent sites are located in Baja California, Zacatecas, Hidalgo, Veracruz, Sinaloa and Yucatan.

Despite this tremendous potential, wind development in Mexico has been slow, mainly due to the lack of adequate financial incentives and issues with the existing regulatory framework and policies to encourage use of wind energy.

There are also other market barriers that have retarded wind development, including most recently the adverse effect of the global financial crisis.

Mexico has around 50 GW of total installed electricity generation capacity, which is made up of 49% petroleum products, 21.6% hydro, 19% natural gas, 10% coal, 2.8% nuclear and 2% geothermal power. The installed and operational wind capacity was only 87 MW at the end of 2008, consisting of the state electricity company CFE’s La Venta I and La Venta II projects in Oaxaca. La Venta II (83.3 MW) became operational in January 2007. In 2008, no new wind generating capacity was connected to the Mexican grid.

Mexico’s constitution places the sole responsibility for electricity generation in the hands of the Federal State. The Federal Commission for Electricity (CFE), the state owned enterprise responsible for two thirds of Mexico’s energy generation and nearly all of its transmission, is legally obliged to provide energy at the lowest cost. This has favoured the development of conventional energy sources in the past, as well as some large hydro and geothermal projects, all exclusively by CFE.

The Mexican government is seeking to expand utilization of wind energy, due to the expected decline in Mexico’s fossil fuel reserves, its exceptional and largely unexploited wind resource, and continued electricity demand growth. As a result, the government has recently adopted policies to encourage the greater development of renewable energy, within its National Development Plan, its Sectoral Energy Programme, and as part of a new Renewable Energy Law. However, constitutional and regulatory limitations exist, which hinder the development of wind energy by the private sector.

In 1992, the Mexican Power Sector law was amended to open the door for some private sector participation, creating limited possibilities for self-suppliers, cogeneration and independent power producers to generate and supply power to the national grid. This, however, must not create competition with CFE and Luz y Fuerza, the state owned distribution company for Mexico City, which means that private projects cannot sell electricity directly to end users except through autogeneration (“Autoabastacimiento” or “Self Supply”) schemes.

Under the Independent Power Producer (IPP) scheme, private producers with plants over 30 MW must sell their power to the CFE through long-term power purchase agreements (PPA), which are awarded through competitive bidding procedures based on the lowest average generation price.

Since 1992, more than more than 20% of Mexico’s power generation is supplied by IPPs using conventional thermal power generation.

Under the autogeneration scheme, power consumers can produce electricity for their own use, which will get delivered to the CFE interconnection point and then transported to the consumer. In 2007, the first private autogeneration wind projects were erected and are now undergoing commissioning. This has laid an important foundation for a more significant private sector led development of wind energy in the future.

There is also the possibility to produce electricity for export to another country, which in practice means the US. In October 2008, the Mexican Congress approved the much debated Energy Reform Bill, which includes a renewable energy law to promote and regulate the development of renewables in Mexico: Renewable Energy and Energy Transition Financing Law.

The law aims to promote the use of renewable energy in Mexico and to take best advantage of international mechanisms such as the CDM. It provides a framework for renewable energy development, which now needs to be filled in with detail, including a concrete target and incentives.

The bill put the Energy Ministry SENER in charge of drafting a renewable energy programme, and it called for the development of a national strategy for the sustainable use of energy. Various bodies were created to design a renewable energy strategy and related public policies, which also involve the private sector. The national energy commission CRE was put in charge of issuing administrative norms and methodologies to enable the use of renewable energy and to adapt the electricity dispatch provisions to take into account the technical requirements of renewables.

Finally, a Fund for the Energy Transition and the Use of Energy was created, initially worth 3 billion Mexican pesos (around 150 million EUR) in 2009. This fund is designed to establish a support system to promote the use of renewable energy.

In 2007, a “Temporada abierta” (“Open Season”) was launched by the Mexican government for reservations of electricity transmission capacity required to interconnect future private autogeneration wind farms in Oaxaca. This model aims at identifying the total transmission capacity that private generators are willing to reserve so that the CFE can justify construction of new lines for renewable energy.

Private sector wind autogenerators are also required to pay for a portion of the cost of the new transmission facilities that are required.

During the first temporada abierta, an agreement was signed between the CFE and four private companies, committing the CFE to build 135 km of transmission lines from the La Ventosa project site in Oaxaca to connect it to the national grid. Another agreement for a transmission line of 154 km to Cerro de Oro was also concluded. Both projects are scheduled to be completed between 2010 and 2012.

Approximately 143 MW of private wind autogeneration capacity were erected in Oaxaca at three wind farms during 2008, to start commercial operation during 2009.

These include: * the first 37 MW of the 250 MW Eurus wind farm in Juchitan, Oaxaca, developed by Acciona Energia which will supply 25% of Cemex’s electricity; * the first 79.9 MW of Iberdrola’s La Ventosa wind project in Juchitan, Oaxaca; * Gamesa Energia’s first 26 MW unit of its Bii Nee Stipa I wind farm in Juchitan, Oaxaca

Mexican state power company CFE plans to tender 600 MW of wind projects to IPPs during 2008-2014 in 100 MW increments. These wind IPP projects will operate under power purchase agreements (PPAs) with CFE for 20 years, including a fixed capacity charge, a fixed operation and maintenance charge and a variable energy charge based on fuel prices.

During 2008, a first tender for a wind IPP project was launched for the La Venta III wind farm (101 MW). However the bid process was declared to have failed by CFE and is expected to be re-bid during 2009. CFE is also expected to tender the Oaxaca I (101 MW) wind IPP. Both projects are scheduled to be operational by the end of 2010.

Overall, it is expected that up to 650 MW of wind capacity will be installed and become operational during the next several years under both the IPP (200 MW) and autogeneration schemes (450 MW), all located in Oaxaca. An additional 3.5 MW of private wind autogeneration projects are in developers’ pipelines, 1.5 GW of which already have permits from CFE.

However, the pace of Mexican wind development has been negatively impacted by the market barriers cited above as well as more recently by the global financial crisis, but the Mexican Wind Energy Association (AMDEE) remains cautiously optimistic that by 2012, over 4,000 MW of wind farms could be operational in Mexico based on currently known or announced projects.

The Mexican Wind Energy Association (Asociación Mexicana de Energía Eólica -AMDEE) is a trade association created in 2005 by wind energy developers in Mexico. The aim of the association is to identify common problems and remore existing barriers to wind energy development in the country.